Electronic trading systems provide a forum for buyers and sellers to share price information about traded goods and thereby facilitate efficient marketplace transactions. Sellers and buyers alike may be permitted access to market information to make informed decisions about pricing and volume. Host computers may run a number of applications including order-matching, maintaining order books and positions, price information, and managing and updating databases while trading is being effected. Other data processing may be effected after close of trading, for example creating or maintaining an audit trail. Additionally, some trading interfaces (such as Application Program Interfaces) may allow other computers to act on behalf of users. Such computers may be programmed with statistical models for program trading. Trades may be transacted upon a matching of contra orders, i.e., orders on the opposite sides of a transaction.
One important component of electronic trading systems is order priority. Order priority is the mechanism by which systems determine which orders are matched first, second, etc. To facilitate orderly and market-efficient transactions, electronic trading systems may establish rules or combinations of rules to determine which buyers and which sellers can trade with each other at a given time.
Priority rules may be based on both price, time or other suitable criteria. Typically, buyers and sellers place bids and offers for a defined class of traded goods. Each trading participant may place a bid or offer at a select price and volume. Priority may be awarded to the best or highest bid price from a trading participant who wants to buy the traded good, as well as to the best or lowest offer price from a trading participant who wants to sell the traded good. If multiple competing orders are resident in the system at the same price, then priority may be awarded to the earliest in time order among the competing orders. As such, a queue (or “stack”) of bids and offers develops in price and time order.
In some trading systems, once the queue forms, trading may begin only by an affirmative action on the part of a trading participant. This is sometimes knows as hit—i.e., an acceptance of a pending bid—and lift (or, “take”)—i.e., an acceptance of a pending offer—trading. In hit and lift trading, the trading participant who takes affirmative action to enact a trade—i.e., he either hits a bid or lifts an offer—may be known as the “active” participant. The trading participant whose bid was hit or whose offer was lifted may be known as a “passive” participant. The first of such active and passive trading participants in line to trade may be referred to herein as “current” participants. The current participants may trade while the other participants remain queued up in the stack below waiting to trade.
During some types of hit and lift trading, initial priority may be awarded to the first trading participant that actively hit a bid or lifted an offer and to the first passive participant on the contra side of the trade. These trading participants may therefore transact trades further between each other and then subsequently with more contra counterparties before other participants on their same side who did not initially act affirmatively to trade or may not have participated passively on the contra side of the trade.
In some embodiments of hit and lift trading, once a trade has been transacted, the current participants may be allowed priority to trade additional volume a predetermined time period or some other suitable time period. A hit and lift system that includes the ability for current participants to transact additional volume once an initial trade has been transacted is described in detail in U.S. Pat. No. 6,560,580. The additional time period grants the current participants preferably time-limited exclusivity and allows the current participants at least one period of time to trade exclusively at that price.
After the current trading participants who have initial priority are finished, or, alternatively “done”, trading, trading may continue down the stack in price and time order, or “priority”. Price and time priority trading rewards priority to same price orders that are submitted earliest in time.
Typically, price/time priority trading participants may not move up the stack and into a current priority trading position. As long as the current trading participants are benefiting from their respective priority, the rest of the participants in the stack have to wait. If the current trading participants complete their transactions before their priority ends, valuable trading time may go to waste as price/time trading participants wait in line. Also, the current priority holders, when finished, may wish to make their remaining priority time available for other traders to use, in return for a financial compensation.
It would be desirable to provide a system that allows for participants that desire to trade during the otherwise-wasted time to have access to the time period of limited trading exclusivity.
It would, therefore, be desirable to provide a system and methods of electronic trading that support the acquiring and vending of trading priority.
Electronic exchanges and trading systems that provide such functionality may allow a trader to significantly improve his own or his firm's bottom line or profitability. These qualities, arising out of the technical way such priority situations are handled, may make such exchanges and interfaces desirable.
Furthermore, Exchanges and trading systems that allow quick and economic use of such functionality may allow a trader an advantageous ability to maximize opportunity in fast moving markets.